Can U.S. Lead in Energy Development and Transparency?

Last week, the International Energy Association (IEA) announced the United States could overtake Saudi Arabia to become the biggest global oil producer as soon as 2017, thanks to increased domestic oil and gas production—up 7 percent so far this year—and projections for unconventional shale oil development. The IEA emphasized that such a shift would have profound global implications, putting North America "at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world."

To be sure, the U.S. energy boom has led to great excitement in some quarters over the geopolitical meaning of American energy ‘independence’—though experts point out that greater domestic supply won’t protect domestic consumers from price volatility, let alone remove the U.S. from the effects of oil production ongoing elsewhere. As former Revenue Watch advisory board member David Goldwyn wrote recently in the New York Times:

The most strategic factor in American consumption will remain the price of oil and the effect of disruptions on the U.S. and the global economy, not the source or quantity of U.S. imports.

[…][A]s has been seen since the advent of the Arab Spring political upheaval, the effects of useful increases in U.S. production can be overwhelmed by disruptions in producing countries.

[…]Likewise, the stability of Nigeria and its neighbors matters for reasons that go well beyond protecting U.S. investments there, or the 800,000 barrels a day of Nigerian oil imported to the United States. Nigeria’s stability and prosperity affect the whole of West Africa and so is vital for the United States.

The connection between political stability in resource-rich countries and secure, stable global energy markets is one reason U.S. leadership promoting good governance and transparency in producing regions is so critical. Such leadership—embodied by the disclosure requirements established for U.S.-listed oil, gas and mining companies in Section 1504 of the U.S. Dodd-Frank Act — helps to deliver critical development benefits to citizens in resource-rich states, more than 300 million of whom continue to live on less than $2 a day.

The need for action on oil and gas sector transparency has domestic resonance too, especially as U.S. energy production rises to new heights.

The sale, taking place in New Orleans on November 28, comprises U.S. public land leases in the Gulf of Mexico’s ‘Western Planning Area,’ which covers over 20 million acres. DOI won’t estimate its potential total value before bidding begins, but with thousands of blocks on offer—many with a minimum bid price set as high as almost $600,000—it’s clear the sale represents major potential profits, in bonus bids and future royalties.

Funds collected from oil, gas and mining development on U.S. public lands are already the federal government’s second-largest source of income after taxes, and contribute significantly to state budgets and federal conservation and historic preservation spending. Indeed, the growth of state-level pressure aimed at capturing a greater share of federal revenues for state and municipal budgets underscores the importance of these funds. For instance, Virginia Senators Jim Webb and Mark R. Warner recently made headlines for advocating legislation that seeks to increase oil, gas and alternative energy production off the Virginia coast and the percentage share of proceeds the State of Virginia would receive from such development.

Given their political and fiscal importance, transparency about the value and provenance of U.S. resource revenues—by way of clear and accessible public data on which companies are operating, where, and what they’re paying in exchange for publicly owned resources—will be critical to ensuring that these funds are maximized on behalf of U.S. citizens. DOI’s own revenue collection agents have said as much, noting that reporting detailing the company, payment stream (royalties, rents, etc.) and lease would be most useful to ensuring that "the Federal Government and American taxpayers are receiving the proper returns for extraction of these valuable public resources."

The disclosures required from public companies under Dodd-Frank are a part of this, but so are specific transparency requirements tailored to apply to all companies operating on U.S. public lands—requirements that the U.S. Extractive Industries Transparency Initiative (EITI) has the potential to deliver.

Announced in 2011 as a commitment under the Open Government Partnership, U.S. EITI is well on its way to implementation. DOI held public listening sessions on the initiative throughout 2012, and by early December will announce the makeup of U.S. EITI’s core governing body: a Multi-Stakeholder Group (MSG) convened under the Federal Advisory Committee Act. The MSG will be comprised of equal representatives from the federal government, industry and ‘civil society,’ who together will take decisions on the scope and focus of U.S. EITI.

DOI Secretary Ken Salazar has called U.S. EITI imperative to ensuring "that American taxpayers receive every dollar due" from public lands development, and is indicative of the U.S. government’s commitment to "leading the charge and helping to secure concrete commitments from governments around the globe to promote transparency, increase civil participation, fight corruption, and harness new technologies that make government more open, effective and accountable when it comes to developing energy resources."

Indeed if U.S. EITI is detailed and comprehensive enough to produce meaningful disclosure that builds on the standard adopted under Dodd-Frank—potentially a big "if" —the U.S. has the opportunity to become a global leader not just in energy production, but in transparency in the service of sustainable economic growth and public benefit as well.